Foreign Relations of the United States, 1981–1988, Volume XXXVIII, International Economic Development; International Debt; Foreign Assistance

278. Memorandum From the Under Secretary of State-Designate for Economic Affairs (Wallis) to Secretary of State Shultz¹

Washington, September 10, 1982

SUBJECT

• The Meetings in Toronto

Bob Hormats has sent up the attached memorandum² reporting on Toronto.³ While I am forwarding it, I disagree with many of the points.

• The strains on the international financial system were widely recognized and understood at Toronto. The U.S. position that these strains required caution, not over-reaction, adjustment, not unconditional financing, was consistent with the predominant view.

• The indispensable role of the IMF in promoting adjustment was clear. Equally clear, however, was the resistance on the part of borrowing countries to undertaking the necessary adjustment programs.

• While an increase in fund resources may be justified on economic grounds, I do not believe that more resources will overcome the political resistance to undertaking the adjustment programs.

• Also on fund resources, the U.S. position for an “adequate” increase is largely a negotiating stance (Treasury believes a zero increase is financially appropriate). As such it would be imprudent to define a specific number early in the negotiation.

• The emergency or “crisis management” facility the U.S. has proposed stands on its own merits. We should not bargain on the size of the quota increase in order to achieve acceptance of an inherently useful facility.

• We need to develop better public support for the IMF, foreign assistance, free trade, etc.; but we cannot expect major gains in these areas in the short-term. They are after all longstanding U.S. objectives.

• On Mexico, there is justifiable serious concern. I sat in on Don Regan’s bilateral with Silva-Herzog. He knows the right thing to do. But it is not at all clear that Lopez-Portillo is interested in what is right economically.

I was struck by the widespread commentary on the success we have achieved in lowering inflation and recently interest rates. (Incidentally, those who have for so long blamed their problems on high U.S. interest rates are now saying that lower rates are not enough.) The value of a U.S. recovery, low interest rates and a strong dollar are, nevertheless, recognized by the rest of the world. This achievement comes from strong leadership in domestic economic policies.

U.S. leadership should be in the form of sound economic policy, not in going along with the crowd (anyway, not that crowd).

W. Allen Wallis⁴
Designate

1. Source: Department of State, Files of the Under Secretary of State for Economic Affairs, W. Allen Wallis, Chrons; Memo to the Secretary/Staff and Departmental/Other Agencies; Memos to the Files; White House Correspondence, 1987–1987, Lot 89D378: Wallis Chrons Aug–Sept 1982. Secret. The initials “LPB” are stamped on the memorandum.
2. Dated September 8; attached but not printed.
3. The annual meeting of the Boards of Governors of the World Bank Group and the International Monetary Fund took place in Toronto September 6–9.
4. Wallis initialed “AW” above his typed signature.